The economic recovery is approaching its second birthday – global industrial output bottomed in February 2009. The upswing has proceeded in three phases, with growth rising to a peak in early 2010, slowing sharply over the summer and autumn and picking up again late last year.

Investor behaviour typically turns more cautious around peaks in economic momentum, even when the subsequent slowdown proves to be a "pause to refresh", as recently. Last year's growth "wobble" may have contributed to the Eurozone sovereign liquidity crisis as well as triggering a temporary sharp set-back in equities and strength in the traditional currency "safe havens", the yen and Swiss franc.

A key issue for investors, therefore, is how long the current reacceleration phase will last, since the next momentum peak may mark the onset of another bout of weakness in equities and other "risk" assets. Based on the analysis below, the working hypothesis to be adopted here is that this peak will occur in April or May.

The first chart shows six-month changes in G7 industrial output and the OECD's leading index. Output growth peaked in January 2010 and troughed in November. The leading index turned 2-3 months earlier, providing effective early warning of only 1-2 months allowing for a publication lag of over one month.

The chart also shows a "leading indicator of the leading index", based on the latter's short-term momentum. This is more useful in signalling turning points, with a typical lead time of 5-6 months (4-5 months effective). The indicator reached a trough in June 2010, with this apparent on publication of July data in early September – roughly coincident with the start of another "risk-on" period in markets.

The double-lead indicator was still rising as of November, the latest available month. Allowing for the 5-6 month lead, this suggests no peak in G7 industrial output growth before April at the earliest.

The second chart brings monetary trends into the analysis. G7 real narrow money leads output by 6-12 months, implying that it usually moves ahead of the double-lead indicator. Six-month expansion bottomed in January 2010, 10 months ahead of industrial output and five months before the indicator. This was the basis for a forecast in a post in July that the global economy would reaccelerate from late 2010.

Real money growth, however, has been slowing from a high in July last year, suggesting a peak in output expansion between January and July 2011. As just explained, the double-lead indicator rules out January-March, narrowing the window to April-July. Assuming the same lead time from real money to the economy as at the recent trough (i.e. 10 months), output expansion will peak in May.

A final piece of evidence is the relationship between the double-lead indicators for the G7 and E7 (i.e. seven large emerging economies), shown in the third chart. The E7 indicator led its G7 counterpart by 1-2 months at the two most recent turning points. It appears to have peaked in October, suggesting that the G7 indicator reached a high in November or will in December. This, in turn, would imply an output growth peak in April or May, allowing for the 5-6 month lead.

The hypothesis of a slowdown in economic momentum from a spring peak will be maintained unless G7 real narrow money expansion stages an early recovery. Conviction in the forecast will be strengthened if the G7 double-lead indicator falls in December (released on 14 February) or January. If the scenario is correct, recent strength in business surveys and earnings revisions should moderate moving into the spring.